The Hindu Business Line : SCI bid to augment crude tonnage — To consider plan to purchase 2 new VLCCs

THE board of state-run Shipping Corporation of India (SCI) will consider a proposal at its next meeting slated for April 15-16 to buy two new very large crude carriers (VLCCs) of 3,00,000 dead weight tonnes (dwt) each in a bid to augment its crude tonnage.

The Board will also discuss SCI's plan to buy two new Long Range 1 (LR 1) tankers of 60,000 dwt each plus two second-hand container vessels of 3,000-3,500 twenty-foot equivalent units (TEUs) each , Government sources said.

In February, the SCI Board had cleared a plan to buy two new Capesize bulk carriers of 1,70,000 dwt each, which is now under the consideration of the pre- Public Investment Board (pre-PIB).

The acquisition proposals are being firmed up after the Government recently lifted a ban on capital investments by SCI in view of its on-going disinvestment exercise. But, with the Supreme Court ruling on HPCL and BPCL casting a shadow on the strategic sales of many PSUs including SCI, the Government had allowed SCI to buy ships with an investment limit of up to Rs 300 crore. Being a Mini-Ratna company, SCI can make capital investments of up to a limit of Rs 300 crore per project without seeking Government clearance.

However, the acquisition proposals being lined-up by SCI is expected to involve a substantial amount and will exceed the Rs 300-crore limit. "As such, the investment proposals will have to go through all the channels of the Government decision-making process including pre-PIB, PIB and finally the Cabinet," the sources disclosed.

Simultaneously, the company will have to follow all the procedures and instructions associated with the capital investment by PSUs. SCI will have to enter the market, identify the vessel in case of second-hand purchase, inspect the ships so identified by the technical wing of the company, secure Board clearance and call for price bids after approval from pre-PIB, the source said.

Assuming that all the bureaucratic clearance are in place, a Cabinet clearance will have to wait till a new Government is formed at the Centre after the forthcoming Lok Sabha polls. All these procedures are expected to take a minimum of 4-6 months.

"If the current trend continues, the ship building prices will not hold at this level till September. It will still go up," the sources said. For instance, the new building prices of VLCC are hovering in the range of about $80 million, which is about $15 million more than what SCI had finalised last year with Hyundai yard to build two VLCCs of 3,00,000 dwt each at $65.2 million per vessel. SCI would then have difficulty in getting Government clearance for the acquisitions in view of the stipulation that each and every project would have to satisfy the criteria of an internal rate of return of 12 per cent. "Unless this criteria is fulfilled, the investment proposals will not be cleared by the Government," the sources said.

SCI is buying two more VLCCs as big oil importers such as IOC and Reliance prefer large tankers that can load 2 million barrels of crude to achieve economies of scale since larger quantities of crude can be transported at a time in order to cut shipping costs.